Federal Tax Restructuring and State and Local Governments: An Introduction to the Issues and the Literature

This short Article briefly outlines some of the issues inherent in substituting a comprehensive consumption tax for the existing federal personal and corporate income taxes. It addresses the effects of federal tax restructuring on state and local governments based on state reliance on the federal income tax infrastructure, as well as outlining other major issues for states and localities. The authors recommend that Congress consider the impact of tax reform on state and local governments as among the two or three most important issues it must study as it explores restructuring the federal tax system

Why the European Union Should Adopt Formula Apportionment with a Sales Factor

Using a two-country tax competition model with a multinational enterprise (MNE), this paper addresses the question of whether the European Union should replace separate accounting (SA) in corporate income taxation by formula apportionment (FA) and, if so, which apportionment factors should be used. Our main result is that FA with a sales factor may mitigate or even eliminate fiscal externalities caused by the countries' tax policy. Hence, our analysis provides a microfoundation for the sales apportionment factor. In an empirical calibration to the EU-15 we show that the transition from SA to FA with a sales-only formula raises average tax rates by 2% and average tax revenues by 1 billion euros or 0.1% of GDP. These effects result in an increase of welfare. Copyright � The editors of the "Scandinavian Journal of Economics" 2008 .